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Will a Crypto Surge Follow the Fed’s Latest Move? What You Need to Know
The crypto community is buzzing with speculation about a potential liquidity shift from the Federal Reserve (Fed), and this is news that investors should closely monitor. Market expert VirtualBacon has posited that the most impactful event for cryptocurrencies this year may not be the Bitcoin (BTC) Halving or the approval of exchange-traded funds (ETFs). Instead, it could be the Fed’s anticipated change in liquidity policy.
After an extended period of tightening measures spanning 18 months, reports suggest that the Fed is preparing to pause its quantitative tightening (QT) efforts. In fact, there’s speculation that the Fed may initiate stealth quantitative easing (QE) soon. This potential shift raises intriguing questions about the future of the crypto market.
Liquidity and Altcoin Cycles: A Historical Perspective
In a recent post on the social media platform X, VirtualBacon outlined a compelling connection between liquidity pivots and the cycles of altcoins. Historical patterns reveal that when the Fed halted QT in 2019, altcoins experienced a significant rally. Conversely, when QT commenced in 2022, altcoins peaked, marking a time of heightened volatility.
Looking ahead, VirtualBacon anticipates that as the Fed is expected to conclude QT in 2025, a similar altcoin surge may follow. The correlation is evident: increased liquidity typically leads to rising altcoin prices. Therefore, the pressing question now becomes: When will QT officially end?
Identifying Key Signals for a Fed Pivot
While the Fed may not explicitly label a transition as QE, VirtualBacon notes that a critical indicator will be the removal of language regarding “reducing the size of the balance sheet.” This scenario mirrors the 2019 repo crisis when the Fed injected $75 billion into the financial system in response to cash shortages. Although it was not termed QE, the effects were similar; Bitcoin saw a significant price increase shortly after.
Financial institutions are already making predictions regarding the Fed’s next moves. For instance, Goldman Sachs indicates that the October meeting may be the turning point for QT to end, while Bank of America expects QT to cease by month-end. Furthermore, Evercore suggests that the Fed may signal an end to QT as early as this week.
Market Dynamics and Impending Liquidity
The indicators that previously caused market disruptions in 2019 now signal distress in the current climate. Regardless of official statements, it appears that QT is nearing its conclusion, with stealth QE likely on the horizon. This shift would reinject liquidity into the markets, which historically drives crypto prices.
Liquidity is crucial as it acts as the fuel for market movements, and the Fed is positioned to refill this tank. The CME FedWatch tool currently indicates a 96.7% probability of a rate cut this month and an 87.9% chance of another cut in December. Powell’s recent hints suggest that QT will conclude “in the coming months,” signaling an imminent pivot.
Bitcoin’s Growth Potential Amid Uncertainty
Despite the current market uncertainties, VirtualBacon believes that Bitcoin has not yet peaked. Out of 30 historical indicators that typically signal a bull market peak, none have activated. This data suggests there is still room for growth.
Moreover, the global M2 money supply continues to rise, historically leading Bitcoin prices by 10 to 12 weeks. Since the beginning of the month, this money supply has been on an upward trend, indicating that Bitcoin’s next upward movement is already in the pipeline, albeit lagging behind the liquidity curve.
VirtualBacon also forecasts that once the Fed pivots, a new altcoin season may emerge. For more insights into crypto trends and market dynamics, visit this section.
In summary, the potential shift in the Fed’s liquidity policy could be a game-changer for the crypto market. Investors should keep a keen eye on these developments as they may set the stage for significant market movements. To explore crypto trading options, check out this platform.
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